Why Do I Need A Down Payment For A Rent To Own Home?

by / Monday, 24 February 2014 / Published in Uncategorized

Prior to entering into a Rent to Own agreement, you will be required to provide the home owner with an option deposit, better known as a down payment. This money is your vested interest in the home and will be fully (100%) credited back to you once you are in a position to buy the property.

One of the questions we are asked all the time is, "why is a down payment required prior to moving into the home?" One of the main reasons is the owner of the property is looking for a tenant that is going to look after and maintain their home as if it was their own. By offering a down payment, it shows the owner that you are serious about owning the home and have no intentions on leaving anytime soon.

In other words it shows your commitment to the program and your seriousness about building your down payment to 5%.

The greatest benefit to the future homeowner is the ability to control a property with a limited capital investment. It is particularly useful in a rising market where the buyer eventually purchases a more valuable property, or flips the property to another and pockets the difference between the option price and the sales price. When you purchase a home conventionally, you must pay at least 5% down. If you were to purchase a home that was $300,000 you would require approx. $18,000 – $20,000 for a down payment including your closing costs.

With a rent to own program, you pay first and last month’s rent and an affordable deposit with the intent to help you save for the down payment.

Here is the issue… although you are being put in control of a very expensive asset, $20,000 is not always that easy to save. I know, Darlene and myself was there when we purchased our very first home 15 years ago and it was tough!

Here is the second possible issue… what would happen if you had blemished credit, bad credit or no credit at all?

If you or your loved one is in any of these three situations, the banks would now require a larger percentage down… typically 20% and charge you a higher interest rate. Using the purchase price of $300,000 you are now required to put down over $60,000! I’m not sure about you, but that is a lot cash that many people cannot afford. Here is the worst thing about have poor credit, it does not matter how great your credit looked over the past 10, 15 or 20 years, if something happened last week to your credit score, that is what they go by for the next few years. Instead of looking at the whole picture, they look at the bump in the road and base your life on that.

Now, if you fall into any of the categories above, a Rent to Own Company can help you into home ownership much faster than you thought. In many cases you can start your path into home ownership with as little as $6000.

In a Rent to Own program, the down payment required to start living in your dream home is much less than the conventional way and the best part is you can have poor credit as well. It is a much better way than just renting and having nothing to show for it at the end of the day. Another key thing to remember is your down payment is yours and will be used towards the purchase price of the home once your credit has been restored.

The last key factor to remember is that the numbers above are not set in stone and can always be negotiated. Every family situation is unique. Rent to Own is a win win program if done right. The down payment shows the owner that you are serious about getting into home ownership. The owner is also looking for a future home owner who is going to look after his/her property until transfer of title is complete. Once this happens, the owner can purchase another home in order to help another family that is also serious about changing their lives.

Source by Darlene Hibbert